Mortgage Short Sale

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HAFA (Home Affordable Foreclosure Alternatives) Program

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A short-sale is when the lender agrees to sell the home for less than the mortgage amount owed. It is especially popular with current homeowners who failed to get pass the loan modification process.

 

Due to the poor success rate of the government loan modification plan otherwise known as HAMP which was launched in February 2009, the U.S. government has unveiled a new program called HAFA (Home Affordable Foreclosure Alternatives) in association with Short-Sales and Deed in Lieu of Foreclosure. This new program is set to launch on April 5^th 2010. HAFA is designed as an alternative to eligible borrowers who were not able to keep their homes under HAMP (Home Affordable Modification Program).  

 

The administration has woken up to the realization that many loans will fail to meet the criteria of the HAMP modification not to mention the difficulties many borrowers faced while going past the trial phase hurdle. As of March 2010, 1 million borrowers have entered the trial phase while only less than 116,000 borrowers have been converted into permanent modifications under HAMP.

 

No Deficiency Judgment for 1^st Mortgage  

 

The program ensures all borrowers under HAFA to be not liable for any deficiencies from the first mortgage debt after a completed short-sale. Under the program, first lenders will have to give up their right to pursue borrowers for any deficiencies.

 

Although deficiency judgments cannot be enforced in some states, it has been a fearful thought for many borrowers unaware of the negative consequences arising from a completed short-sale. Some lenders have reportedly gone after borrowers in pursuit of deficiency amounts after a short-sale. In question are second lien holders. To find out whether a deficiency judgments arising from a short-sale can affect you, read our recently published article entitled: How To Avoid A Deficiency Judgment After A Short-Sale? 

 

HAFA Program Incentives

 

Similarly with HAMP, the government is offering incentives for this program to work.

 

1. Borrowers in a short-sale under the HAFA program will receive $1,500 to help them relocate to a new home.
2. Up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders.
3. $1,000 for servicers to cover administrative and processing costs.

 

HAFA Eligibility

 

1. HAMP eligible borrowers or current homeowners under HAMP will qualify.
2. Borrower must have missed 2 consecutive payments under a HAMP modification.
3. Did not qualify for a Trial Period plan under HAMP.
4. Did not successfully complete a Trial Period plan under HAMP.
5. HAMP eligible borrower requesting for a short-sale or a deed in lieu.

 

HAMP Eligibility

 

1. The loan was for the principal residence of the borrower (owner occupied)
2. The loan was a first lien mortgage originated on or before January 1, 2009.
3. The mortgage is delinquent, or default is reasonably foreseeable.
4. The unpaid principal balance on the loan is no more than $729,750 for a single-family property, $934,200 for a dual-unit property, $1,129,250 for a three-unit property, or $1,403,400 for a four-unit property.
5. The total monthly payment on the mortgage (including principal, interest, property taxes, hazard and flood insurance, condominium association fees, homeowner’s association fees, and any escrow payment shortage amounts subject to a repayment plan) is more than 31% of the gross income of all borrowers on that mortgage.

 

HAFA Provisions

 

1. Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
2. Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
3. Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contributions, promissory notes, or deficiency judgments are allowed).
4. Program uses borrower financial and hardship information already collected in connection with consideration of a loan modification under HAMP.
5. Program uses standard processes, documents, and timeframes/deadlines.

HAMP-eligible borrowers must be considered for HAFA within 30 days of either the termination of the HAMP agreement or the request for either a short sale or a deed-in-lieu.

 

Download Required Documents

 

Introduction to HAFA

Alternative Request for Approval of Short Sale (Exhibit B)

Deed-in-Lieu of Foreclosure Agreement (Exhibit C)

Request for Approval of Short Sale (Exhibit A1)

Short Sale Agreement (Exhibit A)

 

Applying for HAFA

 

Eligible applicants must be considered for HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted.

Loan servicers retain the right to accept or deny a HAFA application based on external factors, such as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions, and borrower motivation and cooperation.

 

Natural Motivation for Banks To Agree To More Short-Sales

 

The foreclosure process can be very expensive for banks and lenders. According to Rick Sharga, senior vice president of Realty Trac, banks spend an average of $20,000 to $40,000 per home in going through the entire foreclosure process. Multiply that with millions of outstanding homes on the brink of foreclosure across states, it can all add up to an alarming total.

 

Short-sales will also prevent more homes from sitting vacant for an uncertain period of time. Vacant bank-owned properties are subject to further value deterioration as a result of non-owner occupant, poor maintenance and vandalism. All the above translates to more incurred losses for the lender.